SEPT. 15, 2002
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Q&A: Douglas Nielson
Douglas Nielson, Chief Country Officer, Deutsche Bank, India, speaks to BT Online on what the bank has in mind for India, particularly its plans in the asset management arena. Equity research, as Nielson says, will emerge as a key differentiating factor in this business, and that's exactly what Deutsche is working on.

Long Bond Is Back
The government is bringing back the 30-year bond. Will insurers be the only takers?

More Net Specials
Business Today,  September 1, 2002
The Retail Circus

After spending almost a year looking for ways to boost foreign direct investment into India, a high-level committee headed by Planning Commission Member N.K. Singh has decided that foreign investment should not be allowed in retail. Reason: big retailers will kill employment in the industry. Huh? Before we proceed to blow the committee's specious argument into smithereens, let's get one thing clear: no big retailer-be it Wal-Mart, Carrefour, or Royal Ahold-is waiting with bated breath for the government to open up retail. Simply because real estate in India is way too expensive relative to its quality, the network of highways is abysmal, there is no organised vendor base for many of the food items, and power is exorbitantly priced. If anything, India will have to go down on its knees to woo the Wal-Marts of the world. And we suggest the government does so pronto.

Retail is not about stores. In fact, it is not even about merely selling goods. It's about value and efficiency. Value for the consumer and efficiency for the retailer, the suppliers and, in effect, the economy. Consider what happens when somebody like Wal-Mart comes in with its few hundred million of dollars as initial investment. First of all, it builds a big store, consuming cement and steel, among others. Then, it employs people to man its stores-these people won't be those unfortunate souls who work in dingy kirana stores, but school and college graduates, who today probably work for a couple of thousand rupees. Wal-Mart will invest in their training and employment and pay them decent wages and benefits.

The story won't end there. Simultaneously, Wal-Mart would have created a supplier base for the thousands of products that it will stock. The suppliers will be taught new ways of doing business; they will be made to focus on quality, become more efficient, introduce safer work practices (a Wal-Mart auditor from the US will come and actually check if the supplier's factory has clean toilets and a fire exit, among other things), and this supplier will in turn pass on the knowledge to his own supplier. Then, you start realising how the benefits spread.

More importantly, organised retail will help farmers and small-scale industries to get better prices for their products. There will be less wastage of goods. Current estimates put wastage in the food products at thousands of crores of rupees. Value addition to food products is abysmally low at about 7 per cent, compared to 23 per cent in China and 133 per cent in the UK. (Have you bought branded bananas or apples, or for that matter ready-to-eat salad, from your kirana store?) Reducing wastage will mean cheaper prices for the consumer and better price realisation for the farmer. A richer farmer would be able to take his children off the farm and put them in school. When that happens, the fortunes of rural India will begin to change-for the better.

As for the committee's argument that organised retail will endanger jobs, here are some numbers: According to the US Department of Labor, more than 22 million Americans work in around 2 million retail stores. Wal-Mart, the world's largest corporation with sales of $218 billion (that's slightly less than half of India's GDP), alone employs more than 1.3 million people. There's no reliable estimate on how many people are employed in the retail industry in India (some guesstimates put the figure at 15 per cent of all employable adults). Even if the number matches or exceeds that of the US, it is a given that the average pay of Indian retail workers would be substantially less. Why? Simply because an estimated 96 per cent of the retail sales happens through mom-n-pop stores. And-take note, government-most of them pay no sales tax.

Yet, there's huge potential for organised retail to grow. Homegrown retail chains such as Shoppers Stop, FoodWorld, and Pantaloon are beginning to go national. But to become a Wal-Mart, they will need foreign collaboration both for funds and know-how. By shutting out foreign investment in retail the government is short-changing both the consumer and the economy.